The steep sell-off in the Japanese currency to the lowest level since 1990 has pundits questioning when authorities might intervene to stem further weakness.
and at a pace that has traders asking when authorities might start buying the currency to support it – and why they haven’t done so already.
“For FX intervention to be successful in turning dollar-yen around, better Japanese economic data would most likely have to be matched with slower growth and softening price pressures in the US,” Jane Foley, head of foreign-exchange strategy at Rabobank wrote in a note to clients.“That suggests that the Ministry of Finance’s attempts at scaring speculators away from further increasing their short yen positions could continue for some weeks.
One reason for Japan’s seeming reluctance to act may be that intervention alone cannot alter the wide gulf in interest rates that’s in part driving the yen’s decline. Still, the risk of intervention will rise materially if the yen continues to underperform other assets like it did on Friday, the Goldman strategists added. The currency fell 1.7 per cent that day, the most in six months.
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